Introducing The Property Nerds: Data-Driven Investing

Nerd alert! Property nerds. The home for data-driven property investors. Where we uncover Australia's hot and cold markets, latest headlines and trends. Hi Arjun.

Hi Kent. Hey, first show. We're here. It's good. What do you got?

You got a run sheet for us? You're going to do us an intro? We're going to cover everything about everything. Mate, everything. But I thought I'd start off with 2021.

We were in it and, you know, we've come off a roller coaster of a year. 2020. It's all normal for me. I sit in a room, locked away. You know, Zoom's become normal.

So actually 2020 was my friend. Most people have got the shits with 2020, but it worked for me because suddenly this weird nerdy thing sitting in a room all day long is totally acceptable. Well, see, where I knew time was flying for me was Lakers won their 2020 championship. And then all of a sudden the new season started. So that is a whirlwind.

Well, that's good for you, but the roosters lost. So that's all that matters, right? The roosters lost. There is no other sport. There's no other team.

The roosters lost. Well, mate, I can't talk too much about that, but what I can talk a lot about is the property nerds. We are here. What's the property nerds? Well, mate, let's get started with how I guess all of this came together and the background of the property nerds.

And, you know, personally, a whole bunch of investing mixed with a whole bunch of property buying as a buyer's agent came together. And my love for data, I guess, led myself along over to you as well. And now our numerous catch ups and the nerds came along. So it's 2021, Arjun. When did you first become a buyer's agent?

Now time 2018 was when I started the buyer's agency. That's fresh. Yeah. Yeah. A couple of years in now.

That's good. You started young. And before that, what first investment property back in 2015. So, you know, five years, six years now since 2021 has come along. So that's all coming together as well.

Cool. What did you do before becoming a buyer's agent? I wasn't a whole load of fun banking, but something similar close to it. In mortgages? Did you get exposure to the mortgage space?

Yeah. So I had a lot of time in the branch network, branch managing mortgages, financial planning, mixture of all of those things and managing both directly and indirectly before jumping up into the support office and strategizing and having a whole bunch of coffees before getting out into the property world. Arjun, what branch? Branch, branch. Branch, branch.

Yeah. Which one? Marrickville, Newtown, Surrey Hills for the inner west. Inner west. So the market would have been, well, it's been booming there for a long time, but Newtown, Hipsterville.

Yeah. Let's just say I had every choice of coffee available. Yeah. Did you go to King Street or? Yeah.

We're actually, our branch was on that. So that was King Street was where it all started for the Newtown branch. And before that Marrickville Road for Marrickville. And I think Surrey Hills was Crown Street. So all the main hubs.

You did. All the food. Terrace houses. What about you, Kent? How did this all come together?

I became fascinated with property data out of necessity. I was back in 1998, 99. I was running the underwriting team for Genworth Financial. Back then it was called GE Mortgage Insurance. And we had several hundred property valuations coming in a day.

A lot of them probably from you at Newtown at the CBA there. So a lot of CBA bank, but we had all these valuations coming through. And the underwriting team were now experiencing a lot of centralization. So there was a lot of mortgage lending happening, but centralized. So your underwriter was suddenly processing valuations from Queensland, from Adelaide, you name it.

Some of your favorite suburbs you'll probably cover later from Adelaide. But ultimately we needed to build some tools to give us some comfort and understanding and appreciation of what we were processing for valuations. So GE at that time were great. They sponsored me to go over to Canada and to the US and meet up with some experienced people who understood automated valuation models, AVMs. And they taught me that.

And I went back to school, drove up to Macquarie there and studied some stats subjects and learned how AVMs work. So that was kind of the lead in. And from there I jumped into a company called Price Finder. And there was a handful of us that launched that company and built it up and took a lot of subscribers away from the incumbent at the time. So we did okay.

And then from there I jumped across to the competitor to RP Data. So I was heading up their banking platforms and analytics team. And then the final chapter in the RP Data days was a stint up in China. So we tried to create RP Data in China with a partner. And that was a fascinating 18-month, nearly two-year period where I got to see a lot of big places and lots of people.

So I guess if anything's come out of our introductions, it's our love for data. It's our journey through data and property investing and all the experiences that come with it. And so, Kent, we're here, episode one. And I guess if we're going to give a shout-out to, hey, who's this for? Who is this Property Nerds podcast for?

What would you say? Well, I'd say we've got the investor class, but equally buyer's agents, people like yourself. They're certainly a part of the industry that's fascinated with property data. So certainly with the buyer's agents or BAs, as we like to call them, they have an affinity with the market. They understand the data, but they also have this passion for property.

So I think buyer's agents are big. The investor class is big. Specifically, people who've already got an investment property, not just people looking to buy today, but I think it's really designed around the people who may already have a property and want to understand what's going on. And we've created a website to back up this podcast with lots of trends information. So if you do have an investment property, visit thepropertynerds.

com. au. That's our website. We've got a whole data hub there, we've called it. Lots of data there to help you understand.

So if you're listening to the podcast and you're an investor, we want you to go back to the website and look at these trends. So it becomes a little bit more meaningful, a little personal, because you can put in your particular location. So that's a biggie. So I think the investor class is big. And probably the third market that jumps at me are property developers, specifically the smaller guys, whereas the big ones have their research sorted, have their data generally sorted.

But there's a very large sector of property developers out there that might be doing duplexes or fix and flips right through to a small townhome. So for that particular audience, I think it's good to understand what some of the risks are and what the market might look like in 12 to 18 months' time by the time your projects finish. So they're some of the audiences that jump at me. What about you, Arjun? Property investors, property buyers, property professionals, property developers, totally agree.

And I guess what you've really explained there with regards to the science is actually just making sure we start at the right level. Yes. Because far too often when you think of those barbecue discussions, it's, hey, what's the hot suburb, Kent? Can you tell us that hot suburb? Yeah, it drives me nuts, right?

The hot list, the hot suburbs. And what it is, it's a rearview mirror view of the suburbs where the medians have jumped the highest. So a few call-outs there. Number one, it's a rearview mirror. It's what's happened in the last 12 months or the last three years or whatever.

Secondly, it's a suburb. And there are some suburbs that have a lot of sales, but most don't. So there's a lot of volatility there. And a lot of them have a distribution that's all over the place. You might pick on a beachside suburb.

You've got one market that sits along the beachside and another market that sits away from the beach. So there's all of these suburbs where medians can't be trusted. Exactly. And that leads me to the next point of how we actually, I guess, break down the science. And this is what we'll look to do over the next few parts of this episode.

And how I've liked to break it down is into something called influences and indicators. And so when I think of market influences, I think of the three words that we can use as a cop-out to get out of any conversation if we're a little bit lost with what's happening at the property table. And that is good old demand and supply and confidence. So with market influences, demand, supply, confidence, these are what really causes the shift in capital growth, what drives it. But then when it comes to actually knowing how much of anything is occurring, what is occurring, and is it really showing that strength, this is when indicators come in.

Measures. Measures. And so this is where I start to talk about cause versus effect. And so causes could be that infrastructure project. Cause could be that job.

Population growth. Population growth. There you go. Internal migration. All the things that we can easily talk about.

But the problem is when will the effect show? And so when I think of the effect, all three of those influences need to stock looking for a listing because they make their money on buying a property, right? If the properties are not out there, it hurts the industry. So there's not a lot of inventory out there. There's not a lot of supply out there.

So the demand might be there and we can see that in our metrics. But what we are seeing is a significant fall in listings activity, sales activity. And that drop, there's always a pro and con to everything, right? And I think you touched on to both some of the pros and cons. One is the headlines that can now start to change and headlines kind of suck if you ask me, right?

The change from everything's catastrophic, everything's falling over to all of a sudden, this is boomtown. Same newspaper, you know, between two or three day break can go from saying one thing about the market to the opposite. And it does, it's a pet peeve that I've got in that, you know, it's about sensational headlines. It's about clickbait and not fact. So I think ultimately though, they've got a job.

Their job is to get people to read an article or click through to an article. The beautiful thing about podcasts is you can go deep and you can set your own agenda. So that's what we're doing here. And this is, you know, going deep into that rental data now, you know, when I think of a rental crisis, I'm imagining two things happening, the pros and cons. And from the data, what we can see here is, and for anyone wondering, what are we looking at?

You can visit thepropertynerds. com. au slash data slash hub. So the data hub, you know, we've got a whole range of free tools there for you to use. And what we're looking at is one of our charts called vacancy rates.

And just in front of me, I mean, the amount of regions across Australia that have a vacancy rate starting with a zero in front. It's phenomenal. It's huge. So what is a vacancy rate? It's probably a good question.

The vacancy rate's measured a few different ways, but generally our interpretation is if a property's been listed for three weeks or more, a rental property's been listed for three weeks or more, it's a vacant property, right? Not making money. So typically what we do is we count those up. We display that count on the data hub. But what we then do is express that as a ratio of how many properties in that suburb or in that region are managed by real estate agents.

So that's our metric. How many of those properties in the region are vacant and how many rental properties are there managed by real estate agents? And that's the percentage. That's our vacancy rate. And typically what we're finding across the regions, most housing, regardless of whether it's in the cities or in the regions, housing is extremely low for vacancy rates.

The spots that are high for vacancy rates are pretty much high density. So we've seen across areas, I've got Gosford up in front of me just as an example, it's just plummeted. So the rapid shift down happened about a year ago. So it was up around 5% a year ago, then it just started to plummet. And it just jumped down and it hit about four or five months ago, it hit below 1%.

So we're just seeing this massive, and that's very typical of many of these areas. So we're looking at many locations like a Gosford below 1%. And so there's a part of it that not many people talk about though. And I want to bring this to light and you've touched it on in conversations with me with regards to, A, there's the positive part. Yay, finding tenants.

Yay, getting higher rental dollars. Yes. But then there's a lot of displacement within communities that's happening, right? Well, I think there comes a point where it becomes a zero-sum game. And I think when people are hurting, it's a problem for everybody.

Yes, you've got an investment property, you want it tenanted. But the flip side of the coin is when markets get to where they are now, we've got a rental crisis and there's not enough community houses out there. I think even with the 12,000 or whatever properties was announced to be built through New South Wales, I think we're still below 5% community housing, public housing. And you compare and contrast that to say the United States, they call them multifamily dwellings. I think they call it multifamily.

So of their multifamily marketplace, which is pretty much anything multiple dwelling unit type thing, my back of the envelope had it close to about 10% of them were subsidized or our equivalent of what we would call community housing. So we've got a long way to go before we shelter people in need and do it at a rate of knots that can actually house families and keep them away from homelessness. It's a bit of a problem. That's where I'm at. So there's a flip side to all of this, that it's not just this callous investment strategy discussion.

There are people out there missing out on rental properties with nowhere to go. And then if you now flip it over to the other part in a CBD apartments, we've seen a rapid increase in vacancy rates here. So they're going the other way. And I can just tell you from personal stories, from what I hear from investors that I speak with, I'm not talking a $10 decrease, she'll be right. $20, market's a bit tough.

I'm talking upwards of $100 in rental decrease. Off your rental. And it hasn't really kicked in yet because it's got a long way to go before those vacancy rates dip a lot. Now we've seen that dip in Sydney. We can see some price corrections happening to lure tenants back in.

Still got some way to go, but Melbourne's an interesting one. It seems to me that Melbourne hasn't really reacted yet. The prices haven't moved when you consider how many thousands of properties in and around Melbourne city are vacant right now. A long way to go. That is a huge way to go.

And I think this has the spotlight on apartment investing overall right now. Yeah, well, that was interesting because I've always played a fairly even hand between units and houses. But when we met, you were pretty much only doubling down on houses for your clients, right? Yeah. Over the last 12 months with everything that I've seen, the high density areas equal high risk effectively in all the metrics we're looking at, including inventory levels in the CBD.

So the unit markets are looking bad across the board to the point where, look, effectively, I would classify units as a bad investment. Look, I did it, right? And for those that are holding them at the moment, there is one side of it, which I see building approvals are likely and have been falling in that space. And there've been a huge reduction. Enough?

I don't think so. I think we've got a long time before we start seeing people go, hey, I'm starting to see my values in my inner CBD apartments kick back up. There's a lot of concrete trucks and cranes outside the office here. We're in North Sydney right now. There's a lot of stuff going up.

And I'm seeing flyers up in Parramatta just on the way here, seeing family as well. Flyers are all over about new apartments coming up. So yeah, I mean, that is a hot topic with regards to rents. There is two sides of it. Where there is high demand somewhere, someone is left.

And this is the two sides. We've got our region markets performing extremely strong. And then we've also got our apartments that are seeing a lot of impact and large rental declines. So my crystal ball's telling me that we're going to find a lot of community housing moving into those vacant units and acquiring them. That's my crystal ball for 2021.

A lot of vacant properties or unsold new stock moving into the community housing space. Interesting. Now, other things to talk about. Let's go through our data hub. I think there's a lot of free insights here.

And I just want to make sure that we give a shout out to what's available, how it works. And so as investors are hearing, hey, in the science of property investing, who are the nerds? What's happening out there? What are some of the different things we can talk to in this data hub? I think our hero piece here is the suburb search.

So it's our first feature on the data hub. So we've got the suburb there. What's in that? We've got some census data in there. Now, the census data, I think most people know it's a few years old now, but as a relative metric, it's still obviously very powerful.

We won't have the next census. I think when's the next census? This year. I think it's later this year. Anyway, what we've got in the suburb level data, enter in your suburb and a little light box, a little pop-up box shows.

It'll tell you the average household weekly income, family households, what proportion of the neighborhood or the suburb are family households. The split between property types, so detached houses, townhouses and villas, units and apartments. An interesting point here, I just wonder why we're talking about data is the ABS throw in the terrace houses into that second category of townhouse villa. So that's a bit of a problem because from a property speak, we're talking about strata, but when you throw in terrace houses, we're talking about freehold. So it's a bit of a conundrum for the property nerds talking about townhomes and villas when we're talking about it from an ABS perspective, it does include terrace homes.

So you mentioned it, you were in Newtown, it's pretty much a suburb made up of terrace homes. Fully owned, tenure fully owned and being purchased and rented, big metrics for us, big metrics. That's a big key indicator for risk. So you'll find traditionally a lot of banks, a lot of mortgage insurers And what we do is we're primarily scoring it based on inventory. So this is once you aggregate all of the properties that are listed for sale on average, how many average listings there are, how many average sales there are for that region.

And we express that as an inventory metric, how many months of stock or how many months of inventory. So what we do is we split it up, SA3s, each state is displayed separately so it doesn't take too much time to render up on the page. So we split it up state by state and you just click through each one. The first one up is New South Wales and I'm looking at Gosford now. So Gosford is not only a suburb, but it's actually an SA3 as well.

And we've classified it as house risk very low because the inventory level is below two months. That's for the entire SA3. So that's for houses only. We're just looking at houses. I think obviously a lot of this is born of our view, our shared view that right now we're not interested in apartments.

Correct. Totally agree. And coming back to that inventory point and those measures, that is our starting and core point for risk. Because if we look at that domino effect, low inventory tends to be faster selling, tends to be the less requirement for a vendor to go, let me discount my place and tends to be more seagulls fighting for the chip. And so that's when it comes down to those areas of, hey, it might not be too difficult to sell here, but at the same time, it's likely that prices are going to see upwards pressure.

And so that takes us on to the next measure. We've got price segments. So someone who doesn't get what price segments mean, what does this mean, Kent? Yeah, well, price segments is an interesting one. Typically, a lot of people would buy into an area and not really think about the risk of overcapitalization.

So if you're buying into an area and you're buying in that absolute top end of the market, there's not a lot of room there to add value to the property other than market improvement. So typically what we like to do is segment up the market into certain price brackets. What percentage is in this lower end? What percentage in the higher end is split up multiple ways? And what you can quickly see is by entering your sub, I'm going to pick on Gosford again.

Okay, so here we go. I'm going to put in Gosford. So houses, I'm pulling up houses here. The bulk of houses are in that 400 to 600K bracket. But then you've got areas like, say, Forrester's Beach nearby, where you've got prices that go all the way up to over $2 million.

And you can kind of see the distribution of prices. The other advantage of this price segmentation chart is it tells you how much you can trust or not trust a median. That's a key one. And we've seen some beach towns, like I think up your way in Newcastle, we had an example we were chatting around, Meriwether. And you'll see some price segments sitting there with over the $2 million mark.

And then all of a sudden, you'll see some in the sub $1 million mark. As an investor, you can't trust medians looking at that, can you? No. So over $2 million, there's 20% of the property sales are over $2 million. Yet you've got your next common bracket is way down in that $800 to $1 million mark.

There's 17%. So you can see how medians can bounce around a lot because it wouldn't take too much shift in what's listed for sale to determine what sells, which determines what the price distribution. So it's a suburb, an example of the price segmentation or price distribution that I wouldn't trust a median at all. I'm just imagining someone in Meriwether looking and scrolling and you hit the refresh on your app and you go, I just grew 10%. And then you refresh it, honey, pack my bags, we just lost 15% now.

That's what median data is going to do. And I guess price segments can serve one other key part of your investing journey is when we see a common bracket, see a high proportion of activity. It actually also means that say, if you've got five brackets up to 2 million, but you see a very high proportion in one to 1. 2, a good amount of comparable sales. Well, it's a statistically safe bet.

If you're relying on statistics, pick the stuff around the middle, it'll likely behave. And that's a good example to talk about yields for just a moment, because a lot of the published yields are based on what the median house price is and what the median house price is for rents. And you compare the two medians. But what if you buy a property that's really cheap, not at the median, way down, a one bedroom house or a one bedroom unit? It's below the median.

So you can't necessarily depend on a median to determine the yield. You need to really look at the property specific data. Now, if you can't get a rental estimate specifically for the property and a sale price specifically for the property, your fallback is a stratified median. What is the one bedroom median for the house or a two bedroom median for houses, etc. So that's your next bet.

So if you're doing a quick search when you're looking around and trying to understand yields, be careful. Be careful because of this price distribution thing. Investors, be careful. And if we look at our last few charts here, we've got internal migration and labor markets. Yes, what we've done with, well, internal migration is just one of those government publications.

I don't think it's refreshed yet. So that's interesting. One of the key metrics we picked up on that was Melbourne was just surging and surging. You know, this is the inner Melbourne regions. And I'm just pulling it up now.

This is divided by greater capital city. And you can see that there's been an exodus. So, you know, the internal migration estimates are telling us that the cities, you know, Sydney, Melbourne, especially Melbourne, it was growing, growing and growing. And then something happened. And then there's been a big dip.

So, you know, up through to middle that quarter of June 2020, there was nearly 8,000. That's a big shift. Minus 8,000. I thought that they had the best coffees. Well, they do.

That doesn't change. But this is an interesting shift. And then if you go to the rest of Victoria, for example, where a lot of them would go, there's been an upward shift there. But I think a lot of them bypass New South Wales altogether and went straight for the Sunshine Coast. So I think Sunshine Coast is doing rather well because of this COVID thing.

Yeah. These migration trends have been very interesting. And especially with the overseas borders shut, it just makes it, you know, more important for us to see what's happening internally. Yeah. And so we've got the labour markets.

Now, job creation, job activity, very important to investors. Yeah. But look, there's something in this data that I think is a bit smelly in that I think to be classified as a job, I think it's how many hours a week? One hour, doesn't it? One hour.

That was a Dorothy Dix question. But that's a bit crappy, right? So I think for this to be a really good metric in our models, our machine learning models and nerdy stuff, hours worked down to an SA3 or an SA2 would be just so good. Hey, government person, please help me. But this one hour stuff, you know, hey, it's the best we got, but it's crap.

Talk about work-life balance with an hour of work, right? How good would that be? I'm in. Now, the next two are my favourite, particularly sales listings, rental listings, because what I feel is more important as an impactor is not a couple of thousand people that came in, came out, you know, because a lot of building happens and sometimes it's hard to match all of those up perfectly. To me, what I feel is one of the greatest impactors is simply how many listings are popping up.

Well, the volumes are down, so we can see that. So, you know, there's been a significant downward shift year on year on year, and probably the greatest shift has been the last 12 months. Obviously, a lot of people are just sitting tight, not doing much. We can understand the reasons why, but I think there's a standout here. It's a big driver of the inventory metric.

So we've got very, very low inventory levels, and the bulk of that has been driven by the fact that there's a lack of supply. But the flip side of all of this as well is it's not just driving the inventory, which puts upward pressure on price, it's impacting the industry. Because if a real estate agent can't get a listing and can't get a sale, they don't get a commission. So it does hurt them. It hurts a buyer's agent like you.

If you can't find stock, you don't make money. So that's probably the flip side of this argument. Yeah. And with that flip side, I guess for investors listening, you know, they always love a few locations being shouted out, and I don't mind sharing the goods. So I guess, you know, hearing this listings trend and that falling, we've done a bit of a deep dive on Victoria and New South Wales, and in particular the regions, because they've been hot topic of late.

So I've counted a few regions here, seven in total, I believe. And these seven regions, so we've got the Wangaratta region, we've got Wodonga, Warrnambool, Shepparton, the Mornington Peninsula.